I am having this exact same problem. IE7 will open, but not display a status bar, won't connect to homepage, if you type in an address it says it's currently unavailble. The option drop downs in the upper right corner appear, but won't open anything. Only way to close the browser is to end the process in task manager.
My PC is setup with two accounts. IE7 works in one but not the other. I've tried re-installing IE7 but it didn't help. FireFox works fine in both accounts.
I've run RegClean. AntiVir Guard finds nothing. Microsoft Malicious Removal Tool finds nothing. ZoneAlarm finds nothing. I tried System Restore to a check point 3 days old, but it said nothing had changed.
I also tried to create a new account, and IE7 is goofy under that account too.
Bizarre!